Monthly Archives

December 2017

Labor Department Officially Delays Start of Fiduciary Rule

By | Blog, New in Compliance

December 4, 2017:  Last week, the Department of Labor (“DOL”) officially announced an 18-month extension for the start of key provisions of the Fiduciary Rule. DOL announced that the special Transition Period for the Fiduciary Rule’s Best Interest Contract Exemption (“BICE”) and the Principal Transactions Exemption, and the applicability of certain amendments to Prohibited Transaction Exemption 84-24 (PTEs), will move from January 1, 2018 to July 1, 2019. The extension gives DOL time to consider public comments, review the Fiduciary Rule and related exemptions, and coordinate with the U.S. Securities and Exchange Commission and other securities and insurance regulators. The delay underscores the DOL’s objectives of protecting retirement investors and avoiding unnecessary restrictions imposed upon retirement investors by financial service firms scrambling to fully implement the rule.

The DOL action leaves in place the Fiduciary Rule, effective June 9, 2017, including the revised definitions of fiduciary and investment advice that apply to ERISA plans and IRAs. The DOL’s action continues to recognize various exemptions permitted under the rule. Financial services organizations may rely on the BICE and the Principal Transactions Exemption if they satisfy the Impartial Conduct Standards. The impartial conduct standards, also referred to as the best-interest standard, which took effect on June 9, require fiduciary advisers to adhere to a best-interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements.

The DOL also announced an extension of the temporary enforcement policy contained in Field Assistance Bulletin 2017-02 to cover the 18-month extension period. Therefore, from June 9, 2017, to July 1, 2019, the DOL will not pursue claims against fiduciaries working diligently and in good faith to comply with the Fiduciary Rule and PTEs, or treat those fiduciaries as being in violation of the Fiduciary Rule and PTEs. However, there is nothing to prevent a client from initiating a private action against a fiduciary for not placing their interests first and foremost as affirmed by the Supreme Court (SEC v. Capital Gaines Bureau 1963).

To our clients who have taken affirmative steps to comply with the Fiduciary Rule and demonstrate compliance with the Impartial Conduct Standards, we recommend that you continue to follow your enhanced policies and procedures. To those firms who have not yet implemented policies and procedures, we recommend that you do so.

Action steps to consider, if not already implemented:

  • Identify and segment all retirement investors as ERISA Plans, IRAs, etc. to facilitate tracking, disclosures, and management reporting.
  • Update compliance policies and procedures to document Fiduciary Rule compliance.
  • Update investment advisory agreements and Form ADV disclosures to clarify your firm’s fiduciary status and address inherent conflicts of interest.
  • IRA rollovers should be treated as a fiduciary activity unless it can be clearly and conclusively established that the firm’s role is purely informational, and does not involve the rendering of advice.  Client disclosures and written internal rollover analysis requirements should be in place.
  • Review all marketing materials and disclosures with a view to identifying and eliminating any statements that could be viewed as misleading or inadvertently deemed to constitute a fiduciary recommendation.
  • Evaluate all revenue streams and compensation programs to comport to the Fiduciary Rule exemption under which your firm has chosen to operate (i.e., level pay).
  • Evaluate the use of proprietary products and investments that generate third-party payments in retirement accounts to make sure use of such products is consistent with the best interest standard.
  • Consider benchmarking fees to defend the reasonableness of fees as being in the best interest of retirement investors.
  • Identify the party or parties in your firm responsible for overseeing compliance with the Impartial Conduct Standards.
  • Review insurance policies to ensure that coverage is appropriate under the new Fiduciary Rule.

Please call on us for assistance in implementing the Fiduciary Rule.